A company has three product lines, one of which reflects the following results:

Sales
...

Question

A company has three product lines, one of which reflects the following results:

Sales

$430,000

Variable expenses

250,000

Contribution margin

180,000

Fixed expenses

280,000

Net loss

$ (100,000)

If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If
 management decides to eliminate this product line, the company's net income will

increase by $100,000.

decrease by $180,000.

decrease by $12,000.

increase by $12,000.

Robert · Accepted Answer

Firstly, in this case by eliminating this product line 40 % of the fixed cost will be allocated to 
other product lines so this is cost to the company which is =280,000 * 40% = 112,000 
Secondly, by eliminating this product Line Company will save loss of $100,

A company has three product lines, one of which reflects the following results: Sales $430,000 Variable expenses 250,000 Contribution margin 180,000 Fixed expenses 280,000 Net loss $ (100,000) If this...

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